no. 16-6680 in the united states court of appeals …carlton s. shier, iv acting united states...
TRANSCRIPT
No. 16-6680
IN THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ARNETIA JOYCE ROBINSON, Plaintiff-Appellant,
v.
THE FEDERAL HOUSING FINANCE AGENCY, in its capacity as Conservator of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, MELVIN L. WATT, in his official capacity as Director of the Federal
Housing Finance Agency, and THE DEPARTMENT OF THE TREASURY, Defendants-Appellees.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY
BRIEF FOR THE TREASURY DEPARTMENT
CHAD A. READLER Acting Assistant Attorney General
CARLTON S. SHIER, IV Acting United States Attorney
MARK B. STERN (202) 514-5089
ABBY C. WRIGHT (202) 514-0664
GERARD SINZDAK (202) 514-0718
Attorneys, Appellate Staff Civil Division, Room 7242 U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, DC 20530
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 1
i
TABLE OF CONTENTS
Page(s)
INTRODUCTION .................................................................................................................. 1 STATEMENT OF JURISDICTION ................................................................................... 4 STATEMENT OF THE ISSUES .......................................................................................... 5 STATEMENT OF THE CASE ............................................................................................. 5 A. Fannie Mae and Freddie Mac ........................................................................... 5 B. The 2008 Housing Crisis and HERA ............................................................. 6 C. Conservatorship and the Preferred Stock
Purchase Agreements ........................................................................................ 8 D. The Third Amendment ................................................................................... 11 E. District Court Proceedings ............................................................................. 13 SUMMARY OF ARGUMENT ............................................................................................ 15 STANDARD OF REVIEW ................................................................................................. 16 ARGUMENT .......................................................................................................................... 16 I. HERA’s Anti-Injunction Provision Bars Robinson’s Claims ............................... 16 A. The anti-injunction provision effects “a sweeping ouster”
of judicial authority to grant equitable remedies ......................................... 16 B. FHFA acted within the scope of its statutory authority when
it agreed to the Third Amendment ............................................................... 19 C. HERA’s anti-injunction provision applies to Robinson’s
claims against Treasury.................................................................................... 30
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 2
ii
II. HERA’s Shareholder-Rights Provision Independently Bars Robinson’s Claims ....................................................................................................... 33
A. Robinson’s claims are derivative claims ....................................................... 33 B. The “fiduciary” exception cited by Robinson in the
district court has no applicability here .......................................................... 38 C. There is no conflict-of-interest exception to HERA’s bar
on derivative suits and there is, in any event, no conflict .......................... 41 III. Robinson’s Claim That Treasury Exceeded Its Authority Under
HERA, Which Is Barred, Also Fails On The Merits ............................................. 47 A. The Third Amendment was not a “purchase” of securities ...................... 47 B. The Third Amendment did not exceed Treasury’s authority ................... 50 CONCLUSION ...................................................................................................................... 53 CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE DESIGNATION OF RELEVANT DISTRICT COURT DOCUMENTS (6th Cir. Rule 30(g)(1))
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 3
iii
TABLE OF AUTHORITIES
Cases: Page(s) 16630 Southfield Ltd. P’ship v. Flagstar Bank,
727 F.3d 502, 504 (6th Cir. 2013) .............................................................................. 30, 46
281-300 Joint Venture v. Onion, 938 F.2d 35, 38 (5th Cir. 1991) .......................................................................................... 32
Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012) ................................................................................................... 38
Ameristar Fin. Servicing Co. v. United States, 75 Fed. Cl. 807 (2007) ......................................................................................................... 27
Bank of Am. v. Colonial Bank, 604 F.3d 1239 (11th Cir. 2010) ................................................................................... 17, 18
Bixler v. Foster, 596 F.3d 751 (10th Cir. 2010) ............................................................................................ 37
Block v. Community Nutrition Inst., 467 U.S. 340 (1984) ............................................................................................................. 29
County of Sonoma v. FHFA, 710 F.3d 987 (9th Cir. 2013) .............................................................................................. 18
Courtney v. Smith, 297 F.3d 455 (6th Cir. 2002) .............................................................................................. 29
Cowin v. Bresler, 741 F.2d 410 (D.C. Cir. 1984) ........................................................................................... 35
Cramer v. General Tel. & Elecs. Corp., 582 F.2d 259 (3rd Cir. 1978) .............................................................................................. 42
DeKalb County v. FHFA, 741 F.3d 795 (7th Cir. 2013) ................................................................................................ 6
Delta Savings Bank v. United States, 265 F.3d 1017 (9th Cir. 2001) ............................................................................... 44, 45, 46
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 4
iv
Dittmer Props., L.P. v. FDIC, 708 F.3d 1011 (8th Cir. 2013) ............................................................................................ 31
Dole Food Co. v. Patrickson, 538 U.S. 468 (2003) ............................................................................................................. 33
El Paso Pipeline GP Co. v. Brinckerhoff, 152 A.3d 1248 (Del. 2016) .......................................................................................... 39, 40
Feldman v. Cutaia, 951 A.2d 727 (Del. 2008) ................................................................................................... 35
First Annapolis Bancorp, Inc. v. United States, 644 F.3d 1367 (Fed. Cir. 2011) .......................................................................................... 33
First Hartford Corp. Pension Plan & Tr. v. United States, 194 F.3d 1279 (Fed. Cir. 1999) ....................................................................... 43-44, 45, 46
Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995) ........................................................................................... 17
Friends of Crystal River v. EPA, 35 F.3d 1073 (6th Cir. 1994) .............................................................................................. 17
Gaff v. FDIC, 814 F.2d 311 (6th Cir. 1987) ................................................................................. 34, 35, 36
Gentile v. Rossette, 906 A.2d 91 (Del. 2006) ........................................................................................ 35, 39, 40
Greater Detroit Res. Recovery Auth. v. EPA, 916 F.2d 317 (6th Cir. 1990) .............................................................................................. 17
Hindes v. FDIC, 137 F.3d 148 (3d Cir. 1998) ............................................................................................... 31
International Union, UAW v. NLRB, 765 F.2d 175 (D.C. Cir. 1985) ........................................................................................... 52
Isquith ex rel. Isquith v. Caremark Int’l, Inc., 136 F.3d 531 (7th Cir. 1998) ....................................................................................... 47, 49
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 5
v
Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334 (Del. 1987) ................................................................................................. 40
Jacobson v. AEG Capital Corp., 50 F.3d 1493 (9th Cir. 1995) .............................................................................................. 49
Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991) ........................................................................................................ 34, 44
Katz v. Gerardi, 655 F.3d 1212 (10th Cir. 2011) .......................................................................................... 49
Kellmer v. Raines, 674 F.3d 848 (D.C. Cir. 2012) .................................................................................... 33, 43
Leon Cty. v. FHFA, 700 F.3d 1273 (11th Cir. 2012) ................................................................................... 19, 21
Mach Mining, LLC v. EEOC, 135 S. Ct. 1645 (2015) ......................................................................................................... 31
Nathan v. Rowan, 651 F.2d 1223 (6th Cir. 1981) ............................................................................................ 42
National Trust for Historic Pres. v. FDIC, 21 F.3d 469 (D.C. Cir. 1994) ............................................................................................. 17
North Haven Bd. of Ed. v. Bell, 456 U.S. 512 (1982) ............................................................................................................. 22
Pareto v. FDIC, 139 F.3d 696 (9th Cir. 1998) .............................................................................................. 35
Perry Capital LLC v. Lew, 70 F. Supp. 3d 208 (D.D.C. 2014) ................................................... 5, 6, 9, 11, 42, 46, 48
Perry Capital LLC v. Mnuchin, 848 F.3d 1072 (D.C. Cir. 2017) ........................................... 3, 5, 6, 7, 8, 9, 10, 11, 12, 15,
17, 18, 19, 20, 21, 23, 24, 26, 27, 28, 30, 32, 33, 40, 43, 44
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 6
vi
Public Serv. Co. of New Hampshire v. Hudson Light & Power Dep’t, 938 F.2d 338 (1st Cir. 1991) ......................................................................................... 51-52
Rifkin v. Bear Stearns & Co., 248 F.3d 628 (7th Cir. 2001) .............................................................................................. 33
Robinson v. Ada S. McKinley Cmty. Servs., 19 F.3d 359 (7th Cir. 1994) ................................................................................................ 48
Southern Ohio Coal Co. v. Office of Surface Min., Reclamation and Enf ’t, 20 F.3d 1418 (6th Cir. 1994) ....................................................................................... 17, 53
Starr Int’l Co. v. Fed. Reserve Bank of N.Y., 906 F. Supp. 2d 202 (S.D.N.Y. 2012), aff ’d, 742 F.3d 37 (2d Cir. Nov. 16, 2014) ...................................................................... 40
Superior Vison Servs. v. ReliaStar Life Ins. Co., 2006 WL 2521426 (Del. Ch. Aug. 25, 2006) ................................................................... 40
Taylor v. Sturgell, 553 U.S. 880 (2008) ...................................................................................................... 42, 43
Telematics Int’l, Inc. v. NEMLC Leasing Corp., 967 F.2d 703 (1st Cir. 1992) ............................................................................................... 31
Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) .......................................................................................... 34, 36
Town of Babylon v. FHFA, 699 F.3d 221 (2d Cir. 2012) ........................................................................................ 17, 21
Trustees of Resilient Floor Decorators Ins. Fund v. A & M Installations, Inc., 395 F.3d 244 (6th Cir. 2005) .............................................................................................. 16
United Liberty Ins. Co. v. Ryan, 985 F.2d 1320 (6th Cir. 1993) ............................................................................................ 17
United States v. LTV Corp., 746 F.2d 51 (D.C. Cir. 1984) ............................................................................................. 42
United States v. Petty Motor Co., 327 U.S. 372 (1946) ............................................................................................................. 52
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 7
vii
United States ex rel. Work v. Boutwell, 3 MacArth. 172 (D.C. 1879) .............................................................................................. 46
Warren v. Manufacturers Nat’l Bank, 759 F.2d 542 (6th Cir. 1985) .......................................................................... 35, 36, 37, 38
Statutes: Administrative Procedure Act:
5 U.S.C. § 701(a)(1) ............................................................................................................. 38 5 U.S.C. § 702 ....................................................................................................................... 37
Consolidated Appropriations Act, 2016,
Pub. L. No. 114-113, 129 Stat. 2242 (2015): § 702(a)(2)(A) ............................................................................................................ 22, 51 § 702(a)(2)(B) .................................................................................................................... 51 § 702(b) ...................................................................................................................... 22, 25 § 702(c) .............................................................................................................................. 25
Housing and Economic Recovery Act of 2008,
Pub. L. No. 110-289,122 Stat. 2654:1 12 U.S.C. § 1455(l )(1)(A) ....................................................................................... 1, 8, 47 12 U.S.C. § 1455(l )(2)(A) ........................................................................................... 8, 47 12 U.S.C. § 1455(l )(2)(D) ............................................................................................... 47 12 U.S.C. § 1455(l )(3)...................................................................................................... 51 12 U.S.C. § 1455(l )(4)................................................................................................. 8, 47 12 U.S.C. § 1716(4) ............................................................................................................ 5 12 U.S.C. § 1719(g)(1)(A) ...................................................................................... 1, 8, 47 12 U.S.C. § 1719(g)(1)(B) ................................................................................................. 8 12 U.S.C. § 1719(g)(1)(B)(iii) .......................................................................................... 40 12 U.S.C. § 1719(g)(1)(C)(i) ............................................................................................ 40 12 U.S.C. § 1719(g)(2)(A) ........................................................................................ 47, 51 12 U.S.C. § 1719(g)(2)(D) ............................................................................................... 47 12 U.S.C. § 1719(g)(3) ..................................................................................................... 51 12 U.S.C. § 1719(g)(4) ................................................................................................ 8, 47 12 U.S.C. § 4511 ........................................................................................................... 1, 7 12 U.S.C. § 4511(a) .......................................................................................................... 46 12 U.S.C. § 4617(a) ....................................................................................................... 1, 7 12 U.S.C. § 4617(a)(2) ......................................................................... 7, 8, 20, 24, 27, 28 12 U.S.C. § 4617(a)(4) ................................................................................................ 7, 26 12 U.S.C. § 4617(a)(7) .............................................................................................. 29, 30
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 8
viii
12 U.S.C. § 4617(b)(2)(A)(i) ................................................ 7, 13, 15, 29, 33, 43, 44, 45 12 U.S.C. § 4617(b)(2)(B) ............................................................................................... 20 12 U.S.C. § 4617(b)(2)(B)(iv) ......................................................................................... 23 12 U.S.C. § 4617(b)(2)(D) ...................................................................... 8, 20, 22, 23, 27 12 U.S.C. § 4617(b)(2)(G) .............................................................................................. 20 12 U.S.C. § 4617(b)(2)(J) ................................................................................................ 23 12 U.S.C. § 4617(b)(2)(J)(ii) ....................................................................................... 8, 20 12 U.S.C. § 4617(b)(2)(K)(i) ........................................................................................... 45 12 U.S.C. § 4617(f) ................................. 3, 8, 13, 14, 15, 16, 17, 18, 28, 30, 31, 32, 45
Racketeer Influenced and Corrupt Organizations Act,
18 U.S.C. § 1964(c) ....................................................................................................... 37, 38 28 U.S.C. § 1291 ........................................................................................................................ 4 28 U.S.C. § 1331 ........................................................................................................................ 4 28 U.S.C. § 1332(d)(2)(A) ......................................................................................................... 4
Regulation: 26 C.F.R. § 1.1001-3 ................................................................................................................ 50
Other Authorities: Black’s Law Dictionary (10th ed. 2014) ................................................................................... 52 1 Farnsworth on Contracts (3d ed. 2004) .................................................................................. 48 FDIC Resolutions Handbook (Nov. 20, 2015 update) ..................................................... 28 Fed. Home Loan Mortg. Corp. (Freddie Mac),
2012 2Q 10-Q (Quarterly Report, Form 10-Q) (Aug. 7, 2012) ................................... 11 2016 10-K (Annual Report) ............................................................................................... 28
Fed. Nat’l Mortg. Ass’n (Fannie Mae),
2012 2Q 10-Q (Quarterly Report, Form 10-Q) (Aug. 8, 2012) ................................... 11 2016 10-K (Annual Report) ............................................................................................... 28
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 9
ix
FHFA, Table 2: Dividends on Enterprise Draws from Treasury, https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_2.pdf ......................................................................................................... 12, 13
Office of Inspector General, FHFA: Analysis of the 2012 Amendments to the Senior Preferred Stock Purchase Agreements
(March 20, 2013), https://www.fhfaoig.gov/Content/Files/ WPR-2013-002_2.pdf ....................................................................................................... 6
The Continued Profitability of Fannie Mae and Freddie Mac Is Not Assured,
http://www.fhfaoig.gov/Content/Files/WPR-2015-001.pdf. .......................... 12-13 White Paper: FHFA-OIG’s Current Assessment of FHFA’s Conservatorships
of Fannie Mae and Freddie Mac (Mar. 28, 2012), https://www.fhfaoig.gov/ Content/Files/WPR-2012-001.pdf ............................................................................ 6-7
7C Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure (2017) ..................................................................................... 34
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 10
INTRODUCTION
1. By September 2008, the Federal National Mortgage Association (Fannie
Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) found
themselves on the brink of insolvency. At that time, the two government-sponsored
enterprises (GSEs or enterprises) owned or guaranteed over $5 trillion of residential
mortgage assets, representing nearly half the United States mortgage market.
To avert the catastrophic impact on the housing market that would result from
the collapse of the enterprises, Congress enacted the Housing and Economic
Recovery Act of 2008 (HERA), which created the Federal Housing Finance Agency
(FHFA) and empowered it to act as conservator or receiver of the enterprises.
12 U.S.C. §§ 4511, 4617(a). Congress recognized that federal assistance of vast
proportions could be required and authorized the Treasury Department to “purchase
any obligations and other securities issued by” the enterprises.
12 U.S.C. §§ 1455(l )(1)(A), 1719(g)(1)(A).
After FHFA placed the enterprises into conservatorship, Treasury immediately
purchased preferred stock in each entity and committed to provide up to $100 billion
in taxpayer funds to each enterprise to avoid insolvency. As part of its compensation,
Treasury received a senior liquidation preference of $1 billion for each enterprise,
which would increase dollar-for-dollar each time the enterprises drew upon Treasury’s
funding commitment. Treasury also received dividends equal to 10% of its existing
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 11
2
liquidation preference, due quarterly, and an entitlement to a periodic commitment fee
intended to compensate taxpayers for their ongoing commitment.
FHFA and Treasury amended the purchase agreements three times. The first
amendment doubled Treasury’s $100 billion per enterprise funding commitment. By
December 2009, however, it appeared that even the $400 billion commitment might
be insufficient. The second amendment thus permitted the enterprises to draw
unlimited amounts from Treasury to cure any quarterly net-worth deficits through
2012. At the end of 2012, however, Treasury’s commitment would be fixed and
future draws would reduce the remaining funding available. As of August 2012, the
enterprises had drawn $187.5 billion from Treasury to prevent their insolvency.
Between 2009 and 2011, the amount due in dividends to Treasury often
exceeded the enterprises’ earnings, requiring them to draw on Treasury’s funding
commitment to meet their dividend obligations. Through the first quarter of 2012,
the GSEs collectively had drawn over $26 billion from Treasury to pay dividends.
Those draws increased Treasury’s liquidation preference and the enterprises’ future
dividend obligations, obligations that threatened to deplete the remaining
commitment after it became fixed at the end of 2012. The Third Amendment ended
this threat by replacing the fixed dividend obligation with a variable dividend equal to
the amount, if any, by which the enterprises’ net worth exceeds a capital buffer.
2. Plaintiff does not dispute that Treasury’s ongoing commitment is vital to the
enterprises or that the Third Amendment ended the practice of drawing on the
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 12
3
commitment to pay dividends. She nevertheless asserts that that the Third
Amendment was unlawful and seeks injunctive and declaratory relief.
Two separate HERA provisions independently bar plaintiff’s challenges to
FHFA’s and Treasury’s decision to enter into the Third Amendment. First, HERA’s
sweeping anti-injunction provision, 12 U.S.C. § 4617(f), precludes a court from taking
“any action to restrain or affect the exercise of powers or functions of [FHFA] as a
conservator or a receiver.” Every court to consider the question has held that
§ 4617(f) bars the statutory claims Robinson raises here. As the D.C. Circuit
explained in reaching that conclusion, “[s]ection 4617(f) prohibits [a court] from
wielding [its] equitable relief to second-guess either the dividend-allocating terms that
FHFA negotiated on behalf of the Companies, or FHFA’s business judgment that the
Third Amendment better balances the interests of all parties involved, including the
taxpaying public, than earlier approaches had.” Perry Capital LLC v. Mnuchin, 848 F.3d
1072, 1095 (D.C. Cir. 2017); see also id. at 1087 (“The plain statutory text draws a sharp
line in the sand against litigative interference—through judicial injunctions,
declaratory judgements, or other equitable relief—with FHFA’s statutorily permitted
actions as conservator or receiver.”). As the D.C. Circuit and other courts have also
recognized, a litigant cannot evade the anti-injunction bar by naming Treasury as well
as FHFA as a defendant. An injunction against either party would “restrain or affect”
the exercise of the conservator’s powers.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 13
4
Second, under the statute, FHFA as conservator succeeded to “all rights, titles,
powers, and privileges of the [enterprises], and of any stockholder[.]” This provision
“plainly transfers to the FHFA the shareholders’ ability to bring derivative suits on
behalf of [the enterprises].” Perry Capital, 848 F.3d at 1104. Plaintiff’s APA claims
assert injury to the enterprises; she suffers her alleged injury derivatively as a
shareholder; and her actions fall squarely within the transfer-of-shareholder-rights
provision.
Plaintiff’s claims against Treasury would fail even if they were not barred by
HERA. Treasury did not violate the time limits on its authority to purchase new
securities from the enterprises when it agreed to the Third Amendment. As the
district court found, Treasury did not purchase new securities from the enterprises
when it entered into the Third Amendment. Rather, Treasury and FHFA agreed to a
change in payment and other contractual terms. Treasury had ample authority to
agree to such a change.
STATEMENT OF JURISDICTION
Plaintiff invoked the district court’s jurisdiction under 28 U.S.C. § 1331. RE15,
PageID#123. On September 26, 2016, the district court entered judgment granting
the defendants’ motions to dismiss. RE64, PageID#1389; RE63, PageID#1388.
Plaintiff timely filed a notice of appeal on November 14, 2016. RE65, PageID#1390.
This Court has jurisdiction under 28 U.S.C. § 1291.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 14
5
STATEMENT OF THE ISSUES
1. Whether plaintiff’s claims are barred by HERA’s anti-injunction and
transfer-of-shareholder-rights provisions.
2. Whether plaintiff’s claims against Treasury would fail as a matter of law even
if they were not barred by HERA.
STATEMENT OF THE CASE
A. Fannie Mae and Freddie Mac
Congress created Fannie Mae and Freddie Mac to, among other things,
“promote access to mortgage credit throughout the Nation . . . by increasing the
liquidity of mortgage investments and improving the distribution of investment capital
available for residential mortgage financing.” 12 U.S.C. § 1716(4). These
government-sponsored enterprises provide liquidity to the mortgage market by
purchasing residential loans from banks and other lenders, thereby providing lenders
with capital to make additional loans. The enterprises finance these purchases by
borrowing money in the credit markets and by packaging many of the loans they buy
into mortgage-backed securities, which they sell to investors. Perry Capital LLC v.
Mnuchin, 848 F.3d 1072, 1080 (D.C. Cir. 2017).
Although Fannie Mae and Freddie Mac are private, publicly traded companies,
they have long benefited from the perception that the federal government would
honor their obligations should the enterprises experience financial difficulties. Perry
Capital LLC v. Lew, 70 F. Supp. 3d 208, 215 (D.D.C. 2014). This perception has
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 15
6
allowed the enterprises to obtain credit, to purchase mortgages, and to make
guarantees at lower prices than would otherwise be possible. Id.
B. The 2008 Housing Crisis and HERA
With the 2008 collapse of the housing market, Fannie Mae and Freddie Mac
experienced overwhelming losses due to a dramatic increase in default rates on
residential mortgages. Perry Capital, 848 F.3d at 1080; see also DeKalb County v. FHFA,
741 F.3d 795, 798 (7th Cir. 2013) (From 1995 through the early 2000s, the enterprises
“bought risky mortgages and got caught up in the housing bubble; and when the
bubble burst found [themselves] owning an immense inventory of defaulted and
overvalued subprime mortgages.”). At the time, the enterprises owned or guaranteed
over $5 trillion of residential mortgage assets, representing nearly half the United
States mortgage market. RE15, PageID#111; Perry Capital, 848 F.3d at 1080. Their
failure would have had a catastrophic impact on the national housing market and
economy.
The enterprises lost more in 2008 ($108 billion) than they had earned in the
past 37 years combined ($95 billion). Office of Inspector General (OIG), FHFA,
Analysis of the 2012 Amendments to the Senior Preferred Stock Purchase Agreements 5 (Mar. 20,
2013).1 As a result, the enterprises faced capital shortfalls. Perry Capital, 848 F.3d at
1080, 1082; see also OIG, FHFA, White Paper: FHFA-OIG’s Current Assessment of
1 https://www.fhfaoig.gov/Content/Files/WPR-2013-002_2.pdf
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 16
7
FHFA’s Conservatorships of Fannie Mae and Freddie Mac 11 (Mar. 28, 2012) (OIG Report).2
Private investors were unwilling to provide Fannie Mae and Freddie Mac with the
capital they needed to weather their losses and avoid receivership and liquidation.
Perry Capital, 848 F.3d at 1082.
In July 2008, Congress enacted the Housing and Economic Recovery Act of
2008 (HERA), Pub. L. No. 110-289, 122 Stat. 2654. The legislation created FHFA as
an independent agency to supervise and regulate the enterprises, and granted FHFA
the authority to act as conservator or receiver of the enterprises. 12 U.S.C. §§ 4511,
4617(a). FHFA’s authority to appoint itself conservator or receiver is generally
discretionary, id. § 4617(a)(2), but it must place the enterprises into receivership if it
determines that the enterprises’ assets have been worth less than their obligations for
60 calendar days, id. § 4617(a)(4).
HERA provides that FHFA, as conservator or receiver, “immediately
succeed[s] to—(i) all rights, titles, powers, and privileges of the [enterprises] and of
any stockholder, officer, or director of such [enterprises] with respect to the
[enterprises.] ” 12 U.S.C. § 4617(b)(2)(A)(i). The legislation authorizes FHFA, as
conservator, to “take such action as may be—(i) necessary to put the [enterprises] in a
sound and solvent condition; and (ii) appropriate to carry on the business of the
[enterprises] and preserve and conserve the assets and property of the [enterprises].”
2 https://www.fhfaoig.gov/Content/Files/WPR-2012-001.pdf
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 17
8
Id. § 4617(b)(2)(D). HERA also permits a conservator to take actions “for the
purpose of reorganizing, rehabilitating, or winding up the affairs” of the GSEs. Id.
§ 4617(a)(2). HERA further states that FHFA, when acting as conservator, may
exercise its statutory authority in a manner “which the Agency determines is in the
best interests of the regulated entity or the Agency.” Id. § 4617(b)(2)(J)(ii). Finally,
HERA contains an anti-injunction provision, which provides that “[e]xcept as
provided in this section or at the request of the Director, no court may take any action
to restrain or affect the exercise of powers or functions of [FHFA] as a conservator or
a receiver.” Id. § 4617(f).
Recognizing that an enormous commitment of taxpayer funds could be
required, Congress also amended the enterprises’ charters to authorize Treasury to
“purchase any obligations and other securities issued by” the enterprises and “exercise
any rights received in connection with such purchases.” 12 U.S.C. §§ 1455(l )(1)(A),
(2)(A), 1719(g)(1)(A), (B). Treasury’s authority to purchase securities issued by the
enterprises expired on December 31, 2009; its authority to exercise any rights received
in connection with past purchases has no expiration date. Id. §§ 1455(l )(4),
1719(g)(4).
C. Conservatorship and the Preferred Stock Purchase Agreements
FHFA placed the enterprises in conservatorship on September 6, 2008. Perry
Capital, 848 F.3d at 1082; RE15, PageID#112. One day later, Treasury purchased
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 18
9
senior preferred stock in each entity. RE63, PageID#1375; Perry Capital, 848 F.3d at
1082. Under the Preferred Stock Purchase Agreements (Purchase Agreements),
Treasury committed to provide up to $100 billion in taxpayer funds to each enterprise
to maintain their solvency by ensuring that their assets were at least equal to their
liabilities. Id.
The Purchase Agreements entitled Treasury to four principal contractual rights.
RE22-2, PageID#320-347. First, Treasury received preferred stock with a senior
liquidation preference of $1 billion for each enterprise plus a dollar-for-dollar increase
each time the enterprises drew upon Treasury’s funding commitment. RE22-2,
PageID#325-326.3 Second, Treasury was entitled to quarterly dividends equal to 10%
of Treasury’s total liquidation preference. RE22-3, PageID#350. Third, Treasury
received warrants to acquire up to 79.9% of the enterprises’ common stock at a
nominal price. RE22-2, PageID#323, 325. Fourth, beginning in 2010, Treasury
would be entitled to a periodic commitment fee that was intended “to fully
compensate [Treasury] for the support provided by the ongoing [c]ommitment.”
RE22-2, PageID#325. Treasury could waive the commitment fee for one year at a
time based on adverse conditions in the United States mortgage market. Id.4
3 “A liquidation preference is a priority right to receive distributions from the
[enterprises’] assets in the event they are dissolved.” Perry Capital, 70 F. Supp. 3d at 216 n.6.
4 The periodic commitment fee was to be set every five years by mutual agreement between FHFA and Treasury, after consultation with the Chairman of the
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 19
10
Treasury’s initial funding commitment soon appeared to be inadequate. In May
2009, FHFA and Treasury agreed to double Treasury’s funding commitment from
$100 billion to $200 billion for each enterprise. RE22-4, PageID#368, 374; Perry
Capital, 848 F.3d at 1082.
In December 2009, in the face of ongoing losses, it appeared that even the
$200 billion per enterprise funding commitment might be insufficient. Treasury and
FHFA therefore amended the Purchase Agreements for a second time to allow the
enterprises to draw unlimited amounts from Treasury to cure net-worth deficits until
the end of 2012, at which point Treasury’s funding commitment would be fixed.
RE22-4, PageID#368-379.
As of June 30, 2012, the enterprises had drawn $187.5 billion from Treasury’s
funding commitment, making Treasury’s liquidation preference $189.5 billion,
including the initial $1 billion senior liquidation preference for each enterprise. RE15,
PageID#170; Perry Capital, 848 F.3d at 1082. Under the terms of the original
Purchase Agreements, the enterprises’ dividend obligations to Treasury were thus
nearly $19 billion per year.
Federal Reserve. RE22-2, PageID#325. It was to be “determined with reference to the market value of the [c]ommitment as then in effect.” Id. Because Treasury has never required the enterprises to pay the fee (which was indefinitely suspended under the Third Amendment), the amount of the fee has never been set. RE15, PageID#134-135.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 20
11
Between 2009 and 2011, the enterprises could not pay these substantial
dividend obligations out of their earnings. Perry Capital, 848 F.3d at 1079, 1083. The
enterprises thus drew on Treasury’s funding commitment to meet those obligations.
Id. at 1079. Through the first quarter of 2012, Fannie Mae had drawn $19.4 billion
and Freddie Mac had drawn $7 billion, just to pay the dividends they owed Treasury.
RE15, PageID#139; Perry Capital, 70 F. Supp. 3d at 218. Those draws increased
Treasury’s liquidation preference, thus increasing the amount of dividends the
enterprises owed. As their SEC filings reflect, the enterprises anticipated that they
would not be able to pay their 10% dividends to Treasury without drawing on
Treasury’s funding commitment in the future. See Fannie Mae, 2012 Q2 Quarterly
Report (Fannie Mae 10-Q) (Aug. 8, 2012) at 12; Freddie Mac, 2012 Q2 Quarterly
Report (Freddie Mac 10-Q) (Aug. 7, 2012) at 10; Perry Capital, 848 F.3d at 1093.
Indeed, the $11.7 billion Fannie Mae owed annually was more than the enterprise had
made in any year of its existence. See Fannie Mae 10-Q at 4. The $7.2 billion that
Freddie Mac owed annually was more than it had made in all but one year. Freddie
Mac 10-Q at 8.
D. The Third Amendment
To break this cycle, Treasury and FHFA agreed to modify the Purchase
Agreements for a third time. This “Third Amendment,” entered into on August 17,
2012, replaced the previous fixed dividend obligation with a variable dividend equal to
the amount, if any, by which the enterprises’ net worth for the quarter exceeds a
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 21
12
capital buffer. (The capital buffer, initially set at $3 billion, gradually declines over
time, reaching zero in 2018). RE22-5, PageID#381-396; Perry Capital, 848 F.3d at
1083. Under the Third Amendment, the amount of the enterprises’ dividend
obligations thus depends on whether the enterprises have a positive net worth during
a particular quarter, rather than being fixed at 10% of Treasury’s existing liquidation
preference. If the enterprises have a negative net worth, they pay no dividend.5
At the time of the Third Amendment, Treasury anticipated that the amount of
money it would receive under the new dividend formula would be materially
equivalent to what it would have received under the 10% dividend formula. In fact,
Treasury received less in dividends in 2015 ($15.8 billion) and 2016 ($14.6 billion)
than it would have under the original 10% dividend ($18.9 billion). FHFA, Table 2:
Dividends on Enterprise Draws from Treasury;6 see also Perry Capital, 848 F.3d at 1083. In
2013 and 2014, however, the enterprises’ net worth was substantially higher than
expected. The increase in net worth was due in part to a rebound in housing prices
and, more importantly, to non-recurring events, including the enterprises’ one-time
recognition of deferred tax assets that they had previously written off. OIG, FHFA,
The Continued Profitability of Fannie Mae and Freddie Mac Is Not Assured 7-8 (Mar. 18,
5 Treasury also agreed to suspend the periodic commitment fee it was owed
under the original Purchase Agreements for as long as the variable dividend was in place. RE22-5, PageID#385, 393.
6 https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_2.pdf
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 22
13
2015).7 Through the end of 2016, Treasury has received $255 billion in cumulative
dividends from the enterprises, in return for its $187.5 billion investment and ongoing
commitment. FHFA, Table 2: Dividends on Enterprise Draws from Treasury.
E. District Court Proceedings
Plaintiff Arnetia Robinson, a Fannie Mae and Freddie Mac shareholder, filed
this suit against FHFA and Treasury, alleging that the Third Amendment violated the
Administrative Procedure Act (APA) and seeking an injunction setting the
amendment aside. RE15, PageID#171-178. Robinson alleges that FHFA and
Treasury exceeded their authority under HERA when they agreed to the Third
Amendment and that Treasury’s decision-making with respect to the Third
Amendment was arbitrary and capricious. RE15, PageID#173-79.
Treasury and FHFA moved to dismiss the suit, arguing that HERA’s anti-
injunction provision, 12 U.S.C. § 4617(f), and its transfer-of-shareholder-rights
provision, id. § 4617(b)(2)(A)(i), each independently bar Robinson’s APA claims.
The district court granted the motions to dismiss, relying on HERA’s anti-
injunction provision, 12 U.S.C. § 4617(f). RE63, PageID#1388. The court
recognized that § 4617(f) effects “a sweeping ouster” of a court’s authority to grant
equitable relief that would affect actions taken by FHFA in its role as conservator.
7 http://www.fhfaoig.gov/Content/Files/WPR-2015-001.pdf.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 23
14
RE63, PageID#1379. Because such equitable relief was the only relief Robinson
sought, the court reasoned, her claims were barred. Id.
The court noted that a narrow exception to § 4617(f)’s bar exists where a
plaintiff can show that FHFA acted beyond statutory or constitutional bounds.
RE63, PageID#1379. But Robinson had failed to make that showing, the court
concluded. RE63, PageID#1382-1388. Through HERA’s conservatorship
provisions, Congress granted FHFA statutory authority of “extraordinary breadth,”
the court noted, “likely due to [HERA’s] enactment during an unprecedented crisis in
the housing market.” RE63, PageID#1385. The Third Amendment was “clearly
authorized” by that broad grant of authority. RE63, PageID#1388.
Regarding Robinson’s claims against Treasury, the court ruled that she could
not circumvent the anti-injunction bar by suing Treasury as FHFA’s contractual
counterparty. RE63, PageID#1380. The court also rejected Robinson’s argument
that Treasury violated HERA by purchasing new securities in the enterprises after
Treasury’s authority to make such purchases expired on December 31, 2009. RE63,
PageID#1381 (citing 12 U.S.C. § 1719(g)(4)). The Third Amendment did not involve
a “purchase” of new securities, the court concluded; it simply “represented a new
formula of divided compensation for a $200 billion-plus investment Treasury had
already made.” Id.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 24
15
SUMMARY OF ARGUMENT
1. In authorizing the expenditure of taxpayer money to rescue Fannie Mae and
Freddie Mac, Congress enacted two provisions that bar challenges to the actions of
the conservator or receiver.
First, HERA’s anti-injunction provision, 12 U.S.C. § 4617(f), precludes a court
from taking “any action to restrain or affect the exercise of powers or functions of
[FHFA] as a conservator or a receiver.” The district court correctly held (like every
other court to consider the question) that Robinson’s APA claims—which ask this
Court to enjoin the Third Amendment—fit squarely within § 4617(f)’s bar. The
district court also correctly concluded that Robinson cannot evade the anti-injunction
bar by naming Treasury as a defendant. An injunction against either Treasury or
FHFA would “restrain or affect” the exercise of the conservator’s powers.
Second, HERA provided that FHFA, as conservator or receiver, would
“immediately succeed” to “all rights, titles, powers, and privileges of the [enterprises],
and of any stockholder[]” with respect to the enterprises and their assets. 12 U.S.C.
§ 4617(b)(2)(A)(i). This provision “plainly transfers [to the FHFA the] shareholders’
ability to bring derivative suits on behalf of the Companies.” Perry Capital, 848 F.3d at
1104. Robinson asserts that the Third Amendment deprived the enterprises of
capital; the relief she seeks would require transfer of funds to the enterprises and
would allegedly result in future increases in the enterprises’ capital. Robinson’s claims
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 25
16
are thus quintessentially derivative claims and fall squarely within the transfer-of-
shareholder-rights provision.
2. Robinson’s claims against Treasury would fail even were they not barred by
HERA. Treasury did not violate the time limits on its authority to purchase new
securities from the enterprises when it agreed to the Third Amendment. Treasury
obtained no new shares and obligated no additional funds. Treasury acted well within
its authority when it altered the compensation structure of the securities Treasury
already owned.
STANDARD OF REVIEW
This Court reviews the district court’s grant of a motion to dismiss de novo.
Trustees of Resilient Floor Decorators Ins. Fund v. A & M Installations, Inc., 395 F.3d 244,
247-48 (6th Cir. 2005).
ARGUMENT
I. HERA’s Anti-Injunction Provision Bars Robinson’s Claims.
A. The anti-injunction provision effects “a sweeping ouster” of judicial authority to grant equitable remedies.
Robinson’s claims are barred by 12 U.S.C. § 4617(f), which provides that “no
court may take any action to restrain or affect the exercise of powers or functions of
[FHFA] as a conservator” of the GSEs. As the D.C. Circuit recently explained,
HERA’s anti-injunction provision, like its FIRREA analogue, “effect[s] a sweeping
ouster of courts’ power to grant equitable remedies” to parties challenging actions
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 26
17
taken by FHFA as conservator. Perry Capital LLC v. Mnuchin, 848 F.3d 1072, 1087
(D.C. Cir. 2017) (quoting Freeman v. FDIC, 56 F.3d 1394, 1399 (D.C. Cir. 1995));
United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1329 (6th Cir. 1993) (Under
FIRREA’s anti-injunction provision, district court’s lack jurisdiction to enter an order
that would “limit [the Resolution Trust Corporation’s] exercise of power as a receiver
. . . [or] as a conservator”); National Trust for Historic Pres. v. FDIC, 21 F.3d 469, 472
(D.C. Cir. 1994) (Wald, J., concurring) (FIRREA anti-injunction provision “bar[s] a
court from acting in virtually all circumstances.”); see also Town of Babylon v. FHFA, 699
F.3d 221, 228 (2d Cir. 2012) (Section 4617(f) “excludes judicial review of ‘the exercise
of powers or functions’ given to the FHFA as a conservator.”).
Judicial review is available under § 4617(f), if at all, only in the rare case where
FHFA acts beyond statutory or constitutional bounds. See Freeman, 56 F.3d at 1398.
To establish that FHFA acted ultra vires and thus fit within § 4617(f)’s narrow
exception, Robinson must show that the agency’s action was “manifestly beyond the
realm of its delegated authority.” Southern Ohio Coal Co. v. Office of Surface Mining,
Reclamation & Enf’t, 20 F.3d 1418, 1424 (6th Cir. 1994); Greater Detroit Res. Recovery
Auth. v. EPA, 916 F.2d 317, 323 (6th Cir. 1990) (“[I]t must be shown that the action
of the agency was a patent violation of its authority.”). Such a showing can be made
“only in ‘extreme situations.’ ” Friends of Crystal River v. EPA, 35 F.3d 1073, 1079 n.13
(6th Cir. 1994); see also Bank of Am. v. Colonial Bank, 604 F.3d 1239,1243 (11th Cir.
2010) (Section 1821(j) “has been interpreted broadly to bar judicial intervention
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 27
18
whenever the FDIC is acting in its capacity as a receiver or conservator, even if it
violates its own procedures or behaves unlawfully in doing so.”) (citing cases).
For the reasons explained below, Robinson falls far short of making the
showing necessary to circumvent § 4617(f)’s broad bar. At root, Robinson’s challenge
boils down to a disagreement over the manner in which FHFA executed its duties as
conservator of the GSEs. In Robinson’s view, FHFA restructured the enterprises’
dividend obligations to Treasury when it did not need to do so, entered into a
financially reckless deal, and failed to prioritize the build-up of capital, even if that
option would have increased the risk of depleting Treasury’s funding commitment.
As numerous courts have held, section 4617(f) prohibits precisely such “second-
guess[ing]” of “FHFA’s business judgment that the Third Amendment better balances
the interests of all parties involved.” Perry Capital, 848 F.3d at 1095; see also id. at 1088-
89 (Although the stockholders “no doubt disagree about the necessity and fiscal
wisdom of the Third Amendment[,]. . . Congress could not have been clearer about
leaving those hard operational calls to FHFA’s managerial judgment.”); County of
Sonoma v. FHFA, 710 F.3d 987, 993 (9th Cir. 2013) (“[I]t is not our place to substitute
our judgment for FHFA’s.”); Bank of America, 604 F.3d at 1244 (FIRREA’s anti-
injunction provision barred claim that FDIC unlawfully sold assets belonging to the
plaintiff, because claim was merely an allegation of “FDIC’s improper performance of
its legitimate receivership functions”).
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 28
19
Moreover, as the district court and other courts have recognized, the
applicability of the HERA bar does not depend, as Robinson suggests, on the
rationale for actions taken by FHFA as conservator of the enterprises. RE63,
PageID#1385; see also Perry Capital, 848 F.3d at 1093 (“[F]or purposes of applying
Section 4617(f)’s strict limitation on judicial relief, allegations of motives are neither
here nor there,” because nothing in HERA “hinges FHFA’s exercise of its
conservatorship discretion on particular motivations.”); see also FHFA Br. 27-29.8
B. FHFA acted within the scope of its statutory authority when it agreed to the Third Amendment.
1. Far from engaging in ultra vires conduct, FHFA acted well within the scope
of its statutory powers when it entered into the Third Amendment. HERA “endows
FHFA with extraordinarily broad flexibility to carry out its role as conservator.” Perry
Capital, 848 F.3d at 1087. In keeping with that broad and flexible endowment, the
statute grants FHFA an array of powers when acting as conservator. These include
the power to “take over the assets of and operate [the GSEs],” to “conduct all
8 Robinson quotes Leon County v. FHFA, 700 F.3d 1273, 1278 (11th Cir. 2012),
for the proposition that “a court ‘must consider all relevant factors,’ including [an] action’s ‘subject matter, its purpose, [and] its outcome’ ” when deciding whether an action by FHFA is reviewable. Pl.Br. 20. But the question presented in Leon County was whether FHFA had taken a particular action in its role as regulator of the enterprises (whose actions are reviewable) or in its role as conservator of the enterprises (whose actions are unreviewable). See Leon Cty., 700 F.3d at 1276-78. The Eleventh Circuit’s suggestion that an action’s purpose is relevant to determining whether FHFA was acting as a regulator or as a conservator has no application here, where the parties do not dispute that FHFA agreed to the Third Amendment in its capacity as conservator.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 29
20
business of the regulated entit[ies],” to “preserve and conserve the assets and property
of the [enterprises],” and to “transfer or sell any asset or liability of the regulated
entity.” 12 U.S.C. § 4617(b)(2)(B),(G). More generally, FHFA has the authority, as a
conservator, to “take such action as may be necessary to put the regulated entity in a
sound and solvent condition” and to undertake any action “appropriate to carry on
the business of the regulated entity and preserve and conserve the assets and property
of the regulated entity.” Id. § 4617(b)(2)(D). It may take these actions “for the
purpose of reorganizing, rehabilitating, or winding up the affairs” of the GSEs. Id.
§ 4617(a)(2). And when exercising these powers, FHFA is empowered to take actions
that it determines are “in the best interests of the regulated entit[ies] or the Agency.” Id.
§ 4617(b)(2)(J)(ii) (emphasis added).
“FHFA’s execution of the Third Amendment falls squarely within its statutory
authority to ‘[o]perate the [Companies],’ 12 U.S.C. § 4617(b)(2)(B); to ‘reorganiz[e]’
their affairs, id. § 4617(a)(2); and to ‘take such action as may be * * * appropriate to
carry on the[ir] business,’ id. § 4617(b)(2)(D)(ii).” Perry Capital, 848 F.3d at 1088. By
entering into the Third Amendment, FHFA took an action it deemed appropriate to
“preserve and conserve” a crucial “asset[]” (or “property”) of the GSEs: the unused
portion of Treasury’s funding commitment. At the time of the Third Amendment in
2012, the enterprises had drawn $187.5 billion from Treasury’s funding commitment.
See supra p. 10. Between 2009 and 2011, the enterprises drew over $25 billion from
the commitment to pay the 10% dividends they owed Treasury. See supra p. 11.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 30
21
These draws increased Treasury’s liquidation preference, which in turn increased the
amount of dividends the enterprises owed; they also threatened to diminish Treasury’s
remaining commitment, which became fixed at the end of 2012.
The Third Amendment ended this cycle and reduced the risk that the
enterprises would exhaust Treasury’s commitment prematurely. By reducing the risk
that Treasury’s capital commitment would be dissipated by dividend obligations, the
Third Amendment ensured that the enterprises would remain solvent for the
foreseeable future and provided certainty to the financial markets from which the
enterprises raise funds. See Perry Capital, 848 F.3d at 1088 (noting that the Third
Amendment ensured the enterprises “ongoing access to vital yet hard-to-come-by
capital”). As the D.C. Circuit explained, “[s]uch management of Fannie’s and
Freddie’s assets, debt load, and contractual dividend obligations during their ongoing
business operation sits at the core of FHFA’s conservatorship function.” Perry
Capital, 848 F.3d at 1086; see also Town of Babylon, 699 F.3d at 227 (taking “protective
measures against perceived risks is squarely within FHFA’s powers as a conservator”);
Leon Cty. v. FHFA, 700 F.3d 1273, 1279 (11th Cir. 2012) (same).
Indeed, subsequent legislation confirms that FHFA was acting within its
statutory authority when it entered into the Third Amendment. In section 702 of the
Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat. 2242 (2015),
Congress legislated with respect to the Senior Preferred Stock Purchase Agreement
between Treasury and the enterprises, which it defined as “the Amended and Restated
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 31
22
Senior Preferred Stock Purchase Agreement, dated September 26, 2008, as such
Agreement has been amended on May 6, 2009, December 24, 2009, and August 17,
2012, respectively, and as such Agreement may be further amended and restated.” Id.
§ 702(a)(2)(A). The legislation provides that “until at least January 1, 2018, the
Secretary may not sell, transfer, relinquish, liquidate, divest, or otherwise dispose of
any outstanding shares of senior preferred stock acquired pursuant” to the agreement
“unless Congress has passed and the President has signed into law legislation that
includes a specific instruction to the Secretary regarding the sale, transfer,
relinquishment, liquidation, divestiture, or other disposition of the senior preferred
stock so acquired.” Id. § 702(b). Congress amended the law fully aware of the Third
Amendment and the agency’s interpretation of its statutory authority. Because
Congress took no steps to halt the agency action, “presumably the legislative intent
has been correctly discerned.” North Haven Bd. of Educ. v. Bell, 456 U.S. 512, 535
(1982).
2. Robinson argues that “HERA requires FHFA as conservator to act
independently to conserve and preserve the Companies’ assets and to put the
Companies in a sound and solvent condition, for the purposes of rehabilitating them.”
Pl.Br. 17. Robinson further asserts courts have the authority to review whether the
Third Amendment was “ ‘necessary’ [and] ‘appropriate’ to achieve” these purported
statutory requirements, Pl.Br. 20 (quoting 12 U.S.C. § 4617(b)(2)(D)), and she claims
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 32
23
that the Third Amendment does not contribute to the GSEs’ solvency, conserve or
preserve their assets, or promote their rehabilitation. Pl.Br. 21-41.
Robinson is wrong on all counts. As both the district court and the D.C.
Circuit emphasized, HERA does not impose the mandatory duties on FHFA that
Robinson posits. RE63, PageID#1386-1387; Perry Capital, 848 F.3d at 1087-90. In
describing FHFA’s powers and authorities as conservator, HERA uses the permissive
“may.” Thus, HERA provides that FHFA “may, as conservator, take such action as
may be . . . necessary to put the regulated entity in a sound and solvent condition; and
. . . appropriate to carry on the business of the regulated entity and preserve and
conserve the assets and property of the regulated entity.” 12 U.S.C. §4617(b)(2)(D)
(emphasis added); see also 12 U.S.C. § 4617(b)(2)(B)(iv) (FHFA “may, as conservator or
receiver . . . preserve and conserve the assets and property of the regulated entity.”)
(emphasis added).
“The statute is thus framed in terms of expansive grants of permissive,
discretionary authority for FHFA to exercise as the ‘Agency determines is in the best
interests of the regulated entity or the Agency.’ ” Perry Capital, 848 F.3d at 1088
(quoting 12 U.S.C. § 4617(b)(2)(J)). Nothing in the Act compels FHFA to preserve
and conserve the enterprises’ assets above all other considerations or to return the
GSEs to a privately-funded model. See Perry Capital, 848 F.3d at 1088 (“Entirely
absent from the Recovery Act’s text is any mandate, command, or directive to build
up capital for the financial benefit of the Companies’ stockholders.”).
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 33
24
In any event, even assuming a judicial role in evaluating whether a particular
action in fact promotes the GSEs’ solvency, conserves their assets, or rehabilitates
them, the Third Amendment advances all of those goals. Much of Robinson’s
argument to the contrary rests on the mistaken premise that FHFA is under an
obligation to return the enterprises to the same state that existed prior to the
conservatorship. See, e.g., Pl.Br. 30 (FHFA must return the GSEs to “normal, private
companies.”). But nothing in HERA mandates that FHFA prioritize returning the
enterprises to their pre-crisis form. See Perry Capital, 848 F.3d at 1093-94 (“[N]othing
in [HERA] mandated that FHFA takes steps to return Fannie Mae and Freddie Mac
at the first sign of financial improvement to the old economic model that got them
into so much trouble in the first place.”). To the contrary, HERA authorizes FHFA,
as conservator, to make significant changes to the enterprises’ operations. See, e.g.,
12 U.S.C. § 4617(a)(2) (stating that FHFA may “be appointed conservator or receiver
for the purpose of reorganizing, rehabilitating, or winding up the affairs of a [GSE]”)
(emphasis added); see also Perry Capital, 848 F.3d at 1090-91 (“FHFA’s textual authority
to reorganize and rehabilitate the Companies, in other words, forecloses any argument
that [HERA] made the status quo ante a statutorily compelled end game.”).
The enterprises were on the precipice of failure in 2008, and Congress did not
require that the conservator return the GSEs to the hands of private shareholders
without significant changes to their structure and operations: a point underscored by
congressional legislation preventing Treasury from selling its preferred stock in the
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 34
25
GSEs for two years. Consolidated Appropriations Act, 2016, § 702(b). The
legislation includes a “Sense of Congress” provision declaring that “[i]t is the Sense of
Congress that Congress should pass and the President should sign into law legislation
determining the future of Fannie Mae and Freddie Mac, and that notwithstanding the
expiration of subsection (b), the Secretary should not sell, transfer, relinquish,
liquidate, divest, or otherwise dispose of any outstanding shares of senior preferred
stock acquired pursuant to the Senior Preferred Stock Purchase Agreement until such
legislation is enacted.” Id. § 702(c).9
Robinson is mistaken when she contends that the Third Amendment leaves the
enterprises on “the brink of insolvency,” thus violating FHFA’s alleged duty to ensure
the GSEs’ soundness and solvency. Pl.Br. 3, 28-31. As explained above, the Third
Amendment arrested the draws-to-pay-dividends cycle that threatened to erode
Treasury’s unused funding commitment. See supra pp. 11-12, 20-21. By preserving
those funds, the Third Amendment ensured that the GSEs would have sufficient
funds to cover any near-term losses, to weather another housing-market downturn,
9 Although the matter has no bearing on the disposition of this suit,
Robinson’s arguments create the mistaken impression that undoing the Third Amendment would responsibly permit the return of the GSEs to their pre-conservatorship form. That discussion disregards the size and nature of the GSEs’ portfolio of mortgage assets and the amount of capital that would be required to end the conservatorship and Treasury’s commitment without structural alterations. For a helpful discussion, see http://www.urban.org/sites/default/files/2000229-privatizing-fannie-and-freddie.pdf (estimating that even under highly optimistic scenarios, it would take the GSEs 18 years to adequately recapitalize).
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 35
26
and to maintain market confidence. Treasury’s commitment has been crucial in
ensuring that the GSEs have sufficient funds to pay their debts and avoid mandatory
receivership under HERA. See 12 U.S.C. § 4617(a)(4). Thus, contrary to Robinson’s
contention, the Third Amendment helps ensure the GSEs’ financial stability and
solvency. See Perry Capital, 848 F.3d at 1091 (The Third Amendment “ensures
continued access to vital capital.”).
Robinson does not dispute that Treasury’s ongoing commitment is vital to the
enterprises’ continuing operation. Rather, Robinson argues (Pl.Br. 30-31) that FHFA
could have preserved Treasury’s commitment in another way (i.e., by paying
Treasury’s dividends in-kind, Pl.Br. 30), that the Third Amendment may ultimately
make draws on the Commitment more, not less, likely, id., and that the Third
Amendment caused the enterprises to incur additional debts in 2013, id. at 31. But it
is just such difficult operational calls and predictive judgments that Congress
entrusted FHFA to make, free of second-guessing by shareholders and courts.
For similar reasons, Robinson is mistaken in asserting that the Third
Amendment did not “preserve and conserve” the enterprises’ assets. Pl.Br. 29, 38-39.
Not only did the Third Amendment help preserve and conserve Treasury’s funding
commitment, but it also relieved the enterprises of their obligation to pay a fixed 10%
cash dividend to Treasury, an obligation that would have cost the GSEs at least $19
billion per year, regardless of their profitability. See supra p. 10. Under the Third
Amendment, Treasury receives a dividend only if the enterprises make money. By
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 36
27
forgoing a fixed dividend, Treasury thus incurred a risk of non-payment, to the
benefit of the GSEs. Treasury also agreed to waive the periodic commitment fee as
long as the variable dividend is in place. In short, the Third Amendment was
structured to, among other things, preserve the enterprises’ assets and avoid
increasing their debts in years (such as 2015 and 2016) when the GSEs earned less
than the $19 billion they otherwise would have owed Treasury. See Perry Capital, 848
F.3d at 1092 (Through the Third Amendment, the GSEs obtained “continued access
to necessary capital free of the preexisting risk of accumulating more debt simply to
pay dividends to Treasury.”).
Robinson’s assertion (Pl.Br. 30) that the Third Amendment violates the
conservator’s statutory duty to “rehabilitate” the GSEs fares no better. As discussed
supra pp. 24-25, HERA does not, as Robinson suggests, require FHFA to rehabilitate
the companies to their prior form (Pl.Br. 15, 30), without regard to the enactment of
structural changes to ensure their long-term viability. Neither 12 U.S.C. § 4617(a)(2)
nor § 4617(b)(2)(D), the two provisions on which Robinson principally relies, suggest
that FHFA must act with the aim of returning the entities to “private companies.” A
conservator can stabilize or rehabilitate a troubled financial institution with an eye
towards returning it to its former status. But it can also rehabilitate an entity to ready
it for reorganization or liquidation. See, e.g., Ameristar Fin. Servicing Co. v. United States,
75 Fed. Cl. 807, 808 n.3 (2007) (describing a conservator as “operat[ing] a troubled
financial institution in an effort to conserve, manage, and protect the troubled
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 37
28
institution’s assets until the institution has stabilized or has been closed by the
chartering authority”); FDIC Resolutions Handbook 91 (glossary) (same); see also 12
U.S.C. § 4617(a)(2) (stating that FHFA may be appointed conservator to reorganize,
rehabilitate, or wind up a GSE’s affairs); Perry Capital, 848 F.3d at 1093 (“Undertaking
permissible conservatorship measures even with a receivership [in] mind would not be
out of statutory bounds.”).
Moreover, Robinson’s allegations that FHFA has failed “to restore [the
enterprises] to viability,” Pl.Br. 22, to return them “to the transaction of [their]
business,” id. at 23, or to rehabilitate them to “going concern[s],” id. at 24, do not
withstand the briefest scrutiny. More than four years removed from the Third
Amendment, the GSEs are going concerns with combined assets of more than $5
trillion. Fannie Mae 2016 10-K, at 55; Freddie Mac 2016 10-K, at 11. “During that
time, Fannie and Freddie, among other things, collectively purchased at least 11
million mortgages on single-family owner-occupied properties, and Fannie issued over
$1.5 trillion in single-family mortgage-backed securities.” Perry Capital, 848 F.3d at
1083. The Third Amendment thus was not, as Robinson suggests (Pl.Br. 32), a de facto
liquidation or tantamount to “placing [the GSEs] into receivership.”10
10 Section 4617(f) bars courts from taking any action that would affect or
restrain FHFA’s exercise of its powers as “a conservator or a receiver.” 12 U.S.C. § 4617(f) (emphasis added). Thus, the district court would have lacked jurisdiction to grant the equitable relief that Robinson seeks—an order declaring the Third Amendment invalid and an injunction setting it aside—even if FHFA had acted as a receiver, not as a conservator, when it agreed to the Third Amendment.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 38
29
3. The district court correctly dismissed Robinson’s claim that FHFA violated
12 U.S.C. § 4617(a)(7) when it entered into the Third Amendment. Section 4617(a)(7)
provides that “[w]hen acting as conservator or receiver, [FHFA] shall not be subject
to the direction or supervision of any other agency.” As the court concluded,
Robinson lacks standing to press an APA claim based on § 4617(a)(7), because she
does not fall within the zone of interests § 4617(a)(7) was designed to protect. RE63,
PageID#1383-84; see Courtney v. Smith, 297 F.3d 455, 461 (6th Cir. 2002) (To bring suit
under the APA, a plaintiff must show that “the interest that [she] seeks to protect is
‘arguably within the zone of interests to be protected or regulated by the statute . . . in
question.’ ”); see also FHFA Br. 44-48.
Section 4617(a)(7) was not designed to protect the interests of shareholders.
Rather, “the clear purpose of the requirement is to provide a preemption defense for
FHFA in its role as conservator.” RE63, PageID#1383. It is thus FHFA’s interests
that § 4617(a)(7) safeguards. Moreover, it is clear that Congress did not “intend[] for
[shareholders] to be relied upon to challenge agency disregard of the law.” Block v.
Community Nutrition Inst., 467 U.S. 340, 347 (1984). As discussed infra Part II,
Congress specified that, upon the commencement of the conservatorships, FHFA
“immediately succeed[ed]” to “all rights, titles, powers, and privileges” of the GSEs’
shareholders, without exception. 12 U.S.C. § 4617(b)(2)(A)(i). Had Congress
intended shareholders to vindicate § 4617(a)(7), it would have reserved them the right
to do so. It did not.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 39
30
In any event, Robinson’s claim that FHFA violated § 4617(a)(7) when it
entered into the Third Amendment fails as a matter of law. Robinson’s allegation that
FHFA acted “at the insistence and direction of Treasury” is based solely “on
information and belief.” RE15, PageID#114, ¶ 11 (Am. Compl.); see also RE15,
PageID#121-22, ¶¶ 24-25; RE15, PageID#161, ¶ 114; RE15, PageID#171, ¶ 135.
Such “conclusory allegations” “contribute nothing to the sufficiency of a complaint”
and do not support a plausible claim for relief. 16630 Southfield Ltd. P’ship v. Flagstar
Bank, 727 F.3d 502, 504 (6th Cir. 2013); see also Perry Capital, 848 F.3d at 1091 n.9
(rejecting identical claim). As FHFA’s vigorous, years-long defense of the Third
Amendment suggests, FHFA entered into the Third Amendment of its own volition.
C. HERA’s anti-injunction provision applies to Robinson’s claims against Treasury.
Section 4617(f) does not permit Robinson to seek to enjoin FHFA’s actions by
naming Treasury as a defendant. As the D.C. Circuit observed, “the effect of any
injunction or declaratory judgment aimed at Treasury’s adoption of the Third
Amendment would have just as direct and immediate an effect as if the injunction
operated directly on FHFA.” Perry Capital, 848 F.3d at 1096; see also RE63,
PageID#1380. Such an injunction against FHFA’s contractual counterparty would
thus run afoul of § 4617(f)’s prohibition on judicial relief that would “restrain or
affect” FHFA’s exercise of its conservatorship powers.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 40
31
Courts applying FIRREA’s analogous anti-injunction provision have reached
the same common-sense conclusion, holding that the provision “precludes a court
order against a third party which would affect the FDIC as receiver, particularly where
the relief would have the same practical result as an order directed against the FDIC
in that capacity.” Hindes v. FDIC, 137 F.3d 148, 160-61 (3d Cir. 1998); see also Dittmer
Props., L.P. v. FDIC, 708 F.3d 1011, 1017 (8th Cir. 2013) (“Even though the FDIC has
apparently already sold the note in question, if plaintiffs such as Dittmer are allowed
to attack the validity of a failed institution’s assets by suing the remote purchaser, such
actions would certainly restrain or affect the FDIC’s powers to deal with the property
it is charged with disbursing.”); Telematics Int’l, Inc. v. NEMLC Leasing Corp., 967 F.2d
703, 707 (1st Cir. 1992) (“Permitting Telematics to attach the certificate of deposit, if
that attachment were effective against the FDIC, would have the same effect, from
the FDIC’s perspective, as directly enjoining the FDIC from attaching the asset. In
either event, the district court would restrain or affect the FDIC in the exercise of its
powers as receiver.”).
The presumption favoring judicial review of agency action, which Robinson
cites in arguing that Treasury’s actions are reviewable here (Pl.Br. 50-52), does not aid
her argument. That presumption “is rebuttable: It fails when a statute’s language or
structure demonstrates that Congress” intended to preclude review. Mach Mining,
LLC v. EEOC, 135 S. Ct. 1645, 1651 (2015). Here, § 4617(f) expressly precludes
judicial review of agency actions where such review would “restrain or affect”
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 41
32
FHFA’s exercise of its conservatorship powers. Because an order invalidating
Treasury’s decision to enter the Third Amendment would do just that, the
presumption favoring reviewability is overcome.
Robinson’s reliance on the Fifth Circuit’s decision in 281-300 Joint Venture v.
Onion, 938 F.2d 35, 38 (5th Cir. 1991), is similarly misplaced. See Pl.Br. 52. The
plaintiff in Joint Venture challenged two separate actions: (1) a determination by the
Federal Home Loan Bank Board that the claims of unsecured creditors of a failed
bank were worthless; and (2) a foreclosure sale executed by the Resolution Trust
Corporation, acting as conservator for the failed bank. 938 F.2d at 38-39. The Fifth
Circuit concluded that the first challenge was prudentially moot, and the second was
barred by § 4617(f)’s FIRREA analogue. Id. The plaintiff in Joint Venture did not
seek to enjoin the Resolution Trust Corporation’s contractual counterparty. Nor is
there any indication that the plaintiff’s claims against the Bank Board, which the court
dismissed on threshold grounds, would have in any way restrained or affected the
Resolution Trust Corporation’s actions as conservator. Id. at 38. In short, the Fifth
Circuit in Joint Venture had no occasion to address the situation presented here, where
Robinson’s “claims against [an agency] are integrally and inextricably interwoven with
FHFA’s conduct as conservator.” Perry Capital, 848 F.3d at 1097.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 42
33
II. HERA’s Shareholder-Rights Provision Independently Bars Robinson’s Claims.
Although the district court did not need to reach the question, Robinson’s
claims against Treasury and FHFA are independently barred by HERA’s transfer-of-
shareholder-rights provision, 12 U.S.C. § 4617(b)(2)(A)(i). That provision provides
that FHFA “shall, as conservator or receiver, and by operation of law, immediately
succeed to . . . all rights, titles, powers, and privileges of the regulated entity, and of
any stockholder, officer, or director of such regulated entity with respect to the
regulated entity and the assets of the regulated entity.” Id. This provision “plainly
transfers [to the FHFA the] shareholders’ ability to bring derivative suits.” Perry
Capital, 848 F.3d at 1104 (quoting Kellmer v. Raines, 674 F.3d 848, 850 (D.C. Cir.
2012)). Because Robinson’s APA claims are derivative claims, they are barred.
A. Robinson’s claims are derivative claims.
1. “A basic tenet of American corporate law is that the corporation and its
shareholders are distinct entities.” Dole Food Co. v. Patrickson, 538 U.S. 468, 474 (2003).
Thus, legal harms committed against a corporation give rise to claims belonging to the
corporation itself, and shareholder suits seeking to enforce those claims are derivative.
See, e.g., First Annapolis Bancorp, Inc. v. United States, 644 F.3d 1367, 1373 (Fed. Cir.
2011). In a derivative suit, any recovery flows to the corporate treasury; in a direct
suit, it flows to the individual plaintiff-shareholder.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 43
34
The determination whether a federal-law claim is direct or derivative is
governed by federal law. See 7C Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1821 (2017); cf. Rifkin v. Bear Stearns & Co., 248 F.3d 628, 631
(7th Cir. 2001) (“[S]tanding to bring a federal claim in federal court is exclusively a
question of federal law.”). Where standing turns on the “allocation of governing
power within [a] corporation,” however, federal law often looks to state-law
principles. Kamen v. Kemper Fin. Servs., 500 U.S. 90, 99 (1991).
The principles for distinguishing direct from derivative claims are well
established and consistent across federal and state law. The analysis is governed by
two questions: “(1) who suffered the alleged harm (the corporation or the suing
stockholders, individually); and (2) who would receive the benefit of any recovery or
other remedy (the corporation or the stockholders, individually)?” Tooley v. Donaldson,
Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004); see also Gaff v. FDIC, 814 F.2d
311, 315 (6th Cir. 1987) (“A suit for damages arising from an injury to the corporation
can only be brought by the corporation itself or by a shareholder derivatively if the
corporation fails to act, . . . since only the corporation has an action for wrongs
committed against it.”). A claim is “direct” when “the duty breached was owed to the
stockholder” and the stockholder “can prevail without showing an injury to the
corporation.” Tooley, 845 A.2d at 1039. A claim is “derivative” if the harm to the
shareholder is the byproduct of some injury to the corporate body as a whole. Id.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 44
35
“Where all of a corporation’s stockholders are harmed and would recover pro
rata in proportion with their ownership of the corporation’s stock solely because they
are stockholders, then the claim is derivative in nature.” Feldman v. Cutaia, 951 A.2d
727, 733 (Del. 2008); see also, e.g., Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006) (“In the
eyes of the law, such equal ‘injury’ to the shares . . . is not viewed as, or equated with,
harm to specific shareholders individually.”). Decisions in this Circuit have adhered
to that principle. See Gaff, 814 F.2d at 315; Warren v. Manufacturers Nat’l Bank, 759 F.2d
542, 544 (6th Cir. 1985).
Moreover, “claims that [defendants] caused the company to enter into a series
of ‘unfair’ transactions that have ‘involved self-dealing’ and ‘diverting assets’ are
fundamentally claims belonging to the corporation and to [shareholders] only
derivatively.” Cowin v. Bresler, 741 F.2d 410, 416 (D.C. Cir. 1984); see also Pareto v.
FDIC, 139 F.3d 696, 699 (9th Cir. 1998) (“Pareto’s allegations—that the directors
breached their duties of care and loyalty by failing to safeguard Barbary Coast’s assets
and equity, mismanaging its operations, [and] improperly placing it into voluntary
receivership . . . describe a direct injury to the bank, not the individual stockholders.”).
2. Robinson asks that the Third Amendment be declared invalid and enjoined,
so that future increases in net worth would be retained by the enterprises, and also
requests that the dividends Treasury has already received be returned to the GSEs.
RE15, PageID#178-179.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 45
36
Such an order would not benefit Robinson directly. The relief sought would
enrich the enterprises and therefore make Robinson’s rights in the enterprises more
valuable. Similarly, the harm that Robinson alleges—the assertedly improper transfer
of the GSEs’ net worth to Treasury—was suffered by the corporation. See, e.g., Pl.Br.
3 (arguing that the Third Amendment “depletes the Companies’ assets and pushes them
to the brink of insolvency”) (emphasis added); Pl.Br. 16 (“[T]he Net Worth Sweep has
transferred to Treasury $125 billion more than the Companies’ pre-Net Worth Sweep
obligations with no corresponding benefit to the Companies.”) (emphases added);
Pl.Br. 30 (“[T]oday the Companies cannot operate as normal, private companies
because the Net Worth Sweep depletes every dollar of their net worth, depriving them
of the ‘future income flows’ that represent a company’s ‘fundamental value.’”); Pl.Br. 37
(the Third Amendment “involve[s] self-dealing [and] waste”).
That the Third Amendment will allegedly cause Robinson indirect harm as a
shareholder, such as a decline in the value of her shares or a reduced likelihood of
future dividends or liquidation payouts, does not transform her claims into direct
claims. See, e.g., Warren, 759 F.2d at 544 (“[D]iminution in value of the corporate
assets is insufficient direct harm to give the shareholder standing to sue in his own
right.”); Gaff, 814 F.2d at 318 (“Gaff primarily claims that his shares in the failed bank
became totally worthless as a result of the defendants’ conduct. . . . [A] diminution in
the value of stock is merely indirect harm to a shareholder and does not bestow upon
a shareholder the standing to bring a direct cause of action.”); Tooley, 845 A.2d at 1037
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 46
37
(A claim is derivative where “the indirect injury to the stockholders arising out of the
harm to the corporation comes about solely by virtue of their stockholdings.”).
3. Robinson argued below that her APA claims are direct, not derivative,
because the APA “provides a cause of action for individuals ‘adversely affected or
aggrieved by agency action,’ 5 U.S.C. § 702, and [she] clearly meets this standard.”
RE30, PageID#622-23. This argument fundamentally misunderstands the distinction
between direct and derivative suits. As explained above, whether a plaintiff’s claim is
direct or derivative turns on the nature of the plaintiff’s harm and the relief sought.
See supra pp. 34-35. Thus, if a plaintiff is adversely affected by agency action only
indirectly (i.e., as a result of harm to the corporation) and seeks relief that accrues to
the corporation, as is the case here, her APA claim is derivative.
This Court’s decision in Warren, which rejected the same argument presented
here, is illustrative. Citing the provision of the Racketeer Influenced and Corrupt
Organizations Act (RICO) that provides a cause of action to “[a]ny person injured in
his business or property by reason of” a RICO violation, 18 U.S.C. § 1964(c), the
plaintiff shareholder in Warren contended that he had a direct cause of action under
§ 1964(c) because he had been harmed as a shareholder when the company whose
stock he owned was defrauded. Warren, 759 F.2d at 544. Rejecting that argument, the
Court emphasized that “[i]n his capacity as a shareholder of Paragon, any injury [the
plaintiff] incurred was actually one sustained by the corporation.” Id. Accordingly,
the Court held, his claim was “derivative” and “must be brought in the name of the
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 47
38
corporation.” Id.; see also Bixler v. Foster, 596 F.3d 751, 758-59 (10th Cir. 2010) (noting
that the court of appeals have “uniform[ly]” held that shareholder claims under
§ 1964(c) are “derivative” and that “corporate shareholders do not have standing to
sue under [§ 1964(c)] for alleged injuries to the corporation”).
Moreover, to the extent the APA grants a cause of action to an aggrieved party,
it does so only where no “statutes preclude judicial review.” 5 U.S.C. § 701(a)(1). As
explained supra pp. 33-36, HERA’s transfer-of-shareholder-rights provision bars
shareholders from bringing suits that seek to remedy harms that shareholders
experience only derivatively and would, in any event, preclude an APA action.
B. The “fiduciary” exception cited by Robinson in the district court has no applicability here.
Claims that a majority shareholder breached a fiduciary duty to minority
shareholders with respect to a corporate transaction are typically derivative claims.
See, e.g., Americas Mining Corp. v. Theriault, 51 A.3d 1213, 1218 (Del. 2012) (claim that
controlling shareholder and the corporation’s directors breached a fiduciary duty to
minority shareholders by causing the corporation to pay an “unfair price” for an asset
was a derivative claim). Delaware law has recognized a narrow exception to that rule
for cases in which “(1) a stockholder having majority or effective control causes the
corporation to issue ‘excessive’ shares of its stock in exchange for assets of the
controlling stockholder that have a lesser value; and (2) the exchange causes an
increase in the percentage of the outstanding shares owned by the controlling
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 48
39
stockholder, and a corresponding decrease in the share percentage owned by the
public (minority) shareholders.” Gentile, 906 A.2d at 100. To the extent that “the
harm resulting from the overpayment is not confined to an equal dilution of the
economic value and voting power of each of the corporation’s outstanding shares,”
those minority shareholders may bring a direct claim to recover for that additional
quantum of harm. Id. The Delaware Supreme Court has emphasized “that the
extraction of solely economic value from the minority by a controlling stockholder”
does not alone constitute “direct injury” under Gentile; a dilution of voting rights is
also required. El Paso Pipeline GP Co. v. Brinckerhoff, 152 A.3d 1248, 1264 (Del. 2016).
A Gentile claim is actionable based on the controlling shareholder’s “breach of
fiduciary duty” to the plaintiff. 906 A.2d at 99-100, 103.
In the district court, Robinson argued that her claims are direct under the
narrow Gentile exception, because Treasury was a controlling shareholder and the
Third Amendment “constituted an unlawful ‘extraction from [Plaintiff], and a
redistribution to [Treasury,] the controlling shareholder, of . . . the economic value’ of
her stock.” RE30, PageID#628 (quoting Gentile, 906 A.2d at 100). Robinson’s
argument is wrong in several respects.
The premise of Robinson’s argument is incorrect: Treasury was not a
controlling shareholder and did not owe a fiduciary duty to the GSEs’ shareholders.
A controlling shareholder of a corporation either owns a majority of the corporation’s
voting shares, or it exercises “actual control” over the corporation’s affairs. Starr Int’l
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 49
40
Co. v. Federal Reserve Bank of N.Y., 906 F. Supp. 2d 202, 221-25 (S.D.N.Y. 2012), aff’d,
742 F.3d 37 (2d Cir. 2014); see also Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d
1334, 1344 (Del. 1987). Treasury is not and has never been a majority shareholder,
nor does it have voting rights in the GSEs. Its rights as a senior preferred shareholder
are entirely contractual. Even “a significant shareholder, who exercises a duly-
obtained contractual right that somehow limits or restricts the actions that a
corporation otherwise would take, does not become, without more, a controlling
shareholder for that particular purpose.” Superior Vison Servs. v. ReliaStar Life Ins. Co.,
2006 WL 2521426, at *5 (Del. Ch. Aug. 25, 2006); see also Starr, 906 F. Supp. 2d at
221-25. Moreover, HERA’s requirements that Treasury act to “protect the taxpayer,”
12 U.S.C. § 1719(g)(1)(B)(iii), and consider the “need for preferences or priorities
regarding payments to the Government,” id. § 1719(g)(1)(C)(i), negates Robinson’s
suggestion that Treasury owed common-law fiduciary duties to the GSEs’
shareholders. See RE63, PageID#1380 n.3.
Even if Treasury could be deemed a controlling shareholder, the exception
would be inapplicable. Robinson asserted below only that Treasury extracted the
economic value of her shares. Her amended complaint is devoid of any allegation
that the Third Amendment also diluted her voting rights, for good reason. The Third
Amendment altered the way Treasury’s dividends are calculated; it did not alter
Treasury’s voting rights (Treasury has none) or its ownership stake in the GSEs. Cf.
Perry Capital, 848 F.3d at 1109 (concluding that the Third Amendment did not alter
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 50
41
the shareholders’ voting rights). Because “the extraction of solely economic value
from the minority by a controlling stockholder” without a corresponding dilution in
voting rights is not sufficient to state a claim under Gentile, Robinson’s reliance on the
Gentile exception necessarily fails. See El Paso Pipeline, 152 A.3d at 1264.
The Gentile exception is also inapplicable because the Third Amendment did
not result in the issuance of additional shares of GSE stock, let alone “excessive”
shares. Nor did the Third Amendment alter the percentage of GSE shares
outstanding that Treasury owns or decrease the percentage owned by private
investors. In short, Treasury and FHFA’s agreement to the Third Amendment is far
removed from the circumstances present in Gentile.
C. There is no conflict-of-interest exception to HERA’s bar on derivative suits and there is, in any event, no conflict.
1. In a further attempt to evade HERA’s bar on derivative suits, Robinson
argued below that there exists an implicit “conflict-of-interest” exception to HERA’s
transfer-of-shareholder-rights provision that would allow shareholders to bring
derivative claims when FHFA, acting as conservator, is allegedly unwilling to bring
suit due to a purported conflict of interest. RE30, PageID#631-35. Robinson is
barred by issue preclusion from advancing her argument that HERA’s succession
provision includes a conflict-of-interest exception, and that argument is without merit
in any event.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 51
42
The doctrine of issue preclusion bars Robinson from arguing that HERA’s
transfer-of-shareholder-rights provision includes an implicit conflict-of-interest
exception. Issue preclusion “bars ‘successive litigation of an issue of fact or law
actually litigated and resolved in a valid court determination essential to the prior
judgment,’ even if the issue recurs in the context of a different claim.” Taylor v.
Sturgell, 553 U.S. 880, 892 (2008). And a judgment rendered in a shareholder
derivative suit precludes subsequent litigation of that issue by the corporation and its
shareholders. Nathan v. Rowan, 651 F.2d 1223, 1226 (6th Cir. 1981) (“Furthermore, in
shareholder derivative actions arising under Fed.R.Civ.P. 23.1, parties and their privies
include the corporation and all nonparty shareholders.”); Cramer v. General Tel. & Elecs.
Corp., 582 F.2d 259, 267 (3rd Cir. 1978) (“Although different shareholders brought
the two actions, the actual plaintiff on whose behalf the claims were brought is the
identical corporation.”); United States v. LTV Corp., 746 F.2d 51, 53 n.5 (D.C. Cir.
1984).
The question whether HERA’s transfer-of-shareholder-rights provision
includes a conflict-of-interest exception was litigated and resolved against Robinson
and all GSE shareholders in Perry Capital v. Lew, 70 F. Supp. 3d 208, 229-30 (D.D.C.
2014). Addressing various derivative claims brought by GSE shareholders, the district
court in Perry Capital concluded that (1) HERA’s transfer-of-shareholder-rights
provision bars derivative suits; and (2) no conflict-of-interest exception to that
provision exists. Id. Those conclusions, both of which were necessary to the court’s
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 52
43
dismissal of the relevant derivative claims, were affirmed by the court of appeals. See
Perry Capital, 848 F.3d at 1106 (“We therefore conclude the Succession Clause does
not permit shareholders to bring derivative suits on behalf of the Companies even
where the FHFA will not bring a derivative suit due to a conflict of interest.”). It is
irrelevant that the derivative claims that the court addressed in Perry Capital were not
derivative APA claims. Issue preclusion applies “even if the issue recurs in the
context of a different claim.” Taylor, 553 U.S. at 892. Because the issue whether
§ 4617(b)(2)(A)(i) includes a conflict-of-interest exception was fully litigated and
decided on the merits against GSE shareholders in previous derivative litigation,
Robinson cannot relitigate it in pursuit of her derivative claims here.
Robinson’s arguments in favor of a conflict-of-interest exception lack merit in
any event. HERA’s transfer-of-shareholder-rights provision by its terms admits of no
exceptions. See also Kellmer, 674 F.3d at 851 (“Congress has transferred everything it
could to the [conservator]” through § 4617(b)(2)(A)(i).).
Moreover, as the D.C. Circuit recognized in Perry Capital, creating a judicial
conflict-of-interest exception would be inconsistent with the purpose of HERA’s
transfer-of-rights provision. Perry Capital, 848 F.3d at 1106. The two courts of
appeals that have recognized a conflict-of-interest exception to FIRREA’s analogous
provision did so on the ground that a receiver facing a conflict of interest might be
“unable or unwilling to [file suit on a corporation’s behalf], despite it being in the best
interests of the corporation.” First Hartford Corp. Pension Plan & Trust v. United States,
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 53
44
194 F.3d 1279, 1295 (Fed. Cir. 1999) (conflict arose because the Federal Deposit
Insurance Corporation [FDIC] would have had to sue itself); see also Delta Savings Bank
v. United States, 265 F.3d 1017, 1021-22 (9th Cir. 2001) (FDIC would have had to sue
the Office of Thrift Supervision, an “interrelated agenc[y] with overlapping personnel,
structures, and responsibilities”).
But it is precisely to address such concerns that courts in some circumstances
have permitted derivative suits. See Kamen, 500 U.S. at 95 (“[T]he purpose of the
derivative action was to place in the hands of the individual shareholder a means to
protect the interests of the corporation from the misfeasance and malfeasance of
faithless directors and managers.”). Through HERA, Congress precluded such
actions. “[I]t makes little sense to base an exception to the rule against derivative suits
in the Succession Clause on the purpose of the derivative suit mechanism.” Perry
Capital, 848 F.3d at 1106.
It would be particularly illogical to conclude that Congress permitted derivative
suits challenging FHFA’s transactions with Treasury. When it enacted HERA,
Congress anticipated that FHFA would turn to Treasury for essential capital and
authorized Treasury to invest in the enterprises. If Congress intended FHFA’s
dealings with Treasury to be subject to challenge by shareholders, it would have
expressly granted shareholders that right. Instead, it transferred “all rights, titles,
powers, and privileges” of the GSEs’ shareholders to FHFA. 12 U.S.C.
§ 4617(b)(2)(A)(i) (emphasis added).
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 54
45
In contrast, HERA provided for shareholders’ participation in the statutory
claims process in the event of the enterprises’ liquidation. 12 U.S.C.
§ 4617(b)(2)(K)(i)). That Congress expressly granted certain rights to shareholders
during a receivership underscores that Congress did not intend shareholders to retain
any rights during a conservatorship.
The conflict-of-interest exception adopted by the Ninth Circuit in Delta Savings
and the Federal Circuit in First Hartford is inapt for an additional reason. In both
cases, the conduct challenged by the plaintiff shareholders occurred before the
relevant federal regulator was appointed receiver. See Delta Savings, 265 F.3d at 1019-
21; First Hartford, 194 F.3d at 1283-84. By contrast, Robinson challenges action taken
by FHFA during the conservatorship, in its role as conservator. It is precisely such
actions that Congress took pains to shield from second-guessing by shareholders and
courts. See 12 U.S.C. § 4617(b)(2)(A)(i), (f). Extending the implicit conflict-of-interest
exception adopted in Delta Savings and First Hartford to Robinson’s suit would run
counter to HERA’s basic design.
2. Even assuming that a conflict-of-interest exception could apply to HERA’s
bar on derivative suits, no such conflict exists here. In the district court, Robinson
alleged that a conflict exists because the Third Amendment was “a joint FHFA-
Treasury initiative.” RE30, PageID#634. But the fact that FHFA and Treasury made
an agreement that Robinson believes to be unlawful does not establish a conflict of
interest. If it did, every transaction FHFA entered could be challenged by
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 55
46
shareholders. Even the two courts that have adopted the conflict-of-interest
exception have rejected such a far-reaching rule. See First Hartford, 194 F.3d at 1295
(emphasizing that the conflict-of-interest exception will apply “only . . . in a very
narrow range of circumstances”); Delta Savings, 265 F.3d at 1023 (“We do not suggest
that the FDIC-as-receiver is faced with a disqualifying conflict every time a bank-in-
receivership is asked to sue another federal agency.”).
Robinson’s conclusory assertion that FHFA and Treasury are “closely related
entities” fails to advance her claim. RE30, PageID#635 n.23.11 FHFA and Treasury
operate independently of one another. See Perry Capital, 70 F. Supp. 3d at 232-33.
They do not have a common genesis: FHFA was created by HERA as an
“independent agency,” 12 U.S.C. § 4511(a); Treasury by the 1789 “[A]ct to [E]stablish
the Treasury Department,” see United States ex rel. Work v. Boutwell, 3 MacArth. 172
(D.C. 1879). And, in contrast to the circumstances in Delta Savings, 265 F.3d at 1023,
FHFA, not Treasury, made the determination to place the enterprises in
conservatorships.
11 Robinson’s allegation “on information and belief” that Treasury compelled
FHFA to enter into the Third Amendment is entitled to no weight and thus cannot support a finding that FHFA suffered from a disabling conflict of interest. See 16630 Southfield Ltd., 727 F.3d at 504; supra p. 30.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 56
47
III. Robinson’s Claim That Treasury Exceeded Its Authority Under HERA, Which Is Barred, Also Fails On The Merits.
For the reasons explained above, the district court lacked jurisdiction over
Robinson’s APA claims against Treasury as well as those against FHFA. Robinson’s
claim that Treasury exceeded its authority under HERA would also fail on the merits.
A. The Third Amendment was not a “purchase” of securities.
HERA vested Treasury with the authority “to purchase any obligations and
other securities” issued by Fannie Mae and Freddie Mac, “on such terms and
conditions as the Secretary may determine and in such amounts as the Secretary may
determine.” 12 U.S.C. §§ 1719(g)(1)(A), 1455(l )(1)(A). HERA further granted
Treasury the authority to, “at any time, exercise any rights received in connection with
such purchases.” Id. § 1719(g)(2)(A); id. § 1455(l )(2)(A). Treasury may also “hold” or
“sell” any securities it acquires. Id. § 1719(g)(2)(D); id. § 1455(l )(2)(D).
Treasury’s authority to purchase new securities from the enterprises expired on
December 31, 2009. 12 U.S.C. § 1719(g)(4); id. § 1455(l )(4). Its authority to “exercise
any rights received in connection” with earlier purchases, as well as its authority to
hold or sell securities, did not. See id. § 1719(g)(2)(D); id. § 1455(l )(2)(D).
The district court correctly rejected Robinson’s assertion that the Third
Amendment was a “purchase” of new “securities.” RE63, PageID#1380-81.
Treasury obtained no new shares of the enterprises’ stock as a result of the Third
Amendment. See Isquith ex rel. Isquith v. Caremark Int’l, Inc., 136 F.3d 531, 534 (7th Cir.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 57
48
1998) (plaintiffs did not “purchase or sell securities” where they “did not buy or sell
shares” in the relevant companies). Treasury did not commit any additional funds to
the enterprises in the Third Amendment. As the district court explained, the Third
Amendment merely altered “the compensation structure” of the securities Treasury
already owned. RE63, PageID#1381 (quoting Perry Capital, 70 F. Supp. 3d at 224). In
exchange for waiving the periodic commitment fee and its entitlement to a dividend
equal to 10% of its liquidation preference, Treasury agreed to accept a dividend equal
to the enterprises’ variable net worth, if any.
Robinson correctly notes that the Third Amendment involved an exchange of
value: FHFA “trad[ed] the Enterprises’ annual fixed dividend and periodic
commitment fee obligations in exchange for the payment of a variable dividend based
on net worth.” Pl.Br. 43. She errs, however, in inferring that the Third Amendment
therefore must have effected a purchase of securities. Robinson declares that “[t]he
touchstone of a purchase is an exchange of value.” Pl.Br. 44. But an “exchange of
value” is also the touchstone of a valid contract amendment. See, e.g., Robinson v. Ada
S. McKinley Cmty. Servs., 19 F.3d 359, 364 (7th Cir. 1994) (“A valid modification
requires an offer, acceptance, and consideration.”); 1 Farnsworth on Contracts § 4.21, p.
524 (3d ed. 2004). And HERA’s sunset provision only bars Treasury’s purchase of
obligations or securities issued by the GSEs. It does not bar other contract
amendments. Implying such a restriction would be particularly anomalous when the
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 58
49
amendment plainly falls within Treasury’s authority to “hold” or “sell” the securities it
owns or to “exercise” previously secured rights.
In the absence of an actual purchase of securities, Robinson is left to argue that
the Third Amendment should be treated as a purchase of new securities because it
“fundamentally change[d]” Treasury’s senior preferred stock. Pl.Br. 44. The
“fundamental change” doctrine, adopted in some securities-fraud cases, is an “esoteric
and dubious judge-made doctrine” whose ongoing validity has been questioned.
Isquith, 136 F.3d at 535-36 (“[W]e very much doubt that the doctrine retains any
validity in any class of case.”). Some courts of appeals have expressly declined to
adopt it, see Katz v. Gerardi, 655 F.3d 1212, 1221 (10th Cir. 2011), and even those
which have accepted it have acknowledged that it “does not cut a wide swath,”
Jacobson v. AEG Capital Corp., 50 F.3d 1493, 1499 (9th Cir. 1995). It is implausible that
Congress intended to incorporate such an “esoteric and dubious” doctrine into
HERA’s definition of “purchase.”
In any event, the doctrine is inapplicable on its own terms. It applies “where a
defendant’s fraud results in a fundamental change in the nature of the plaintiff’s
investment without the plaintiff’s consent.” Katz, 655 F.3d at 1221; Jacobson, 50 F.3d
at 1499 (The fundamental change doctrine is a “narrow” doctrine that applies to
“shareholders who, without any say, find themselves fraudulently forced-out of their
securities.”). Robinson does not claim that the Third Amendment was the product of
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 59
50
fraud. Treasury and FHFA bargained for the changes that were made to the original
Purchase Agreements, and FHFA freely agreed to those changes.12
B. The Third Amendment did not exceed Treasury’s authority.
Robinson alternatively argues that the Third Amendment exceeded Treasury’s
authority even if it did not constitute a purchase of new securities, urging that it falls
outside the powers granted by HERA. Pl.Br. 47-50.
This argument is difficult to fathom. Congress provided Treasury with broad
authority, which it restricted in one respect by ending Treasury’s authority to purchase
new securities on December 31, 2009. It did not freeze the parties’ contract terms as
of that date and preclude Treasury and FHFA from altering their compensation
arrangements as appropriate. Like parties to any contract, Treasury and FHFA had
the power to modify the terms of their contract. Indeed, Congress recognized
Treasury’s inherent authority to modify the terms of its purchase contracts in HERA
and expressly funded such modifications, providing that “[a]ny funds expended for
12 Robinson also cites (Pl.Br. 45-46) an IRS tax regulation, 26 C.F.R. § 1.1001-3,
which address the circumstances in which “modification of the terms of a debt instrument” qualifies as an “exchange” of property, such that any financial gain resulting from the modification must be declared as income. Robinson provides no reason to believe that Congress intended the word “purchase” to be read synonymously with the word “exchange,” as used by the IRS in a tax regulation addressing debt instruments. Robinson likewise provides no grounds for her suggestion (Pl.Br. 45) that, in drafting HERA’s sunset provision, Congress had a 1976 SEC no-action letter, a 1936 letter from the SEC’s general counsel, or a 1938 district court decision in mind.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 60
51
the purchase of, or modifications to, obligations and securities, or the exercise of any
rights received in connection with such purchases under this subsection shall be
deemed appropriated at the time of such purchase, modification, or exercise.” See 12
U.S.C. § 1719(g)(3); id. § 1455(l)(3). And Congress has continued to recognize
Treasury’s ongoing authority to amend the Purchase Agreement. See Consolidated
Appropriations Act, 2016, § 702(a)(2)(A),(B) (defining “Senior Preferred Stock
Purchase Agreement” as “the Amended and Restated Senior Preferred Stock
Purchase Agreement, dated September 26, 2008, as such Agreement has been
amended on May 6, 2009, December 24, 2009, and August 17, 2012, respectively, and
as such Agreement may be further amended and restated, entered into between the
Department of the Treasury and each enterprise, as applicable”).
Even assuming, moreover, that it were necessary that Treasury modify the
Purchase Agreements through the “exercise” of a reserved contractual “right,” that
requirement was satisfied here. When it entered into the Third Amendment, Treasury
“exercise[d] [the] right[],” 12 U.S.C. § 1719(g)(2)(A)—explicitly conferred by the
original Preferred Stock Purchase Agreements in 2008—to amend those contracts.
See RE22-2, PageID#331 (“This Agreement may be waived or amended solely by a
writing executed by both of the parties hereto.”); RE22-2, PageID#345 (same). That
Treasury exercised its right to amend jointly with FHFA makes it no less the exercise
of a right. A contract confers a “right” to be “exercised” even when the right is to be
exercised jointly. See, e.g., Public Serv. Co. of New Hampshire v. Hudson Light & Power
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 61
52
Dep’t, 938 F.2d 338, 345, 347 (1st Cir. 1991) (rejecting “attempt by appellants . . . to
impede [one party’s] exercise of its exclusive contractual right to enter into an
agreement with [the counterparty] to modify the Sellback Agreement.”).13 A right, as
Robinson asserts, is a “legal, equitable, or moral entitlement to do something,” Pl.Br.
48, and to “exercise” means to “make use of; to put into action” or “[t]o implement
the terms of.” Black’s Law Dictionary 693 (10th ed. 2014). When Treasury and FHFA
agreed to the Third Amendment, they “ma[d]e use of” their “legal . . . entitlement” to
amend the original Purchase Agreements.
In sum, HERA authorized Treasury to agree to the Third Amendment. And,
insofar as Robinson seeks to bring her claims within an exception to HERA’s anti-
injunction provision on the basis of ultra vires action, she has signally failed to meet her
13 Robinson cites two cases for the assertion that “an arrangement that
depends on ‘mutual consent’ is not a right at all,” Pl.Br. 49, both of which are inapposite. United States v. Petty Motor Co., 327 U.S. 372 (1946), was a takings case that concerned the amount of just compensation the government owed to tenants of a property that the government had appropriated. The Supreme Court determined that the tenants were entitled to damages equal to the value of the remainder of their lease. Id. at 380. In a footnote, the Court noted that plaintiffs were not entitled to damages based on the expected renewal of their leases, even though the building’s landlord had often extended their leases through “mutual consent.” Id. at 380 n.9. It was the terms of the lease, not the parties’ informal expectations, that delineated the tenants’ “rights” to compensation. Id. International Union, UAW v. NLRB, 765 F.2d 175, 183 (D.C. Cir. 1985), applied the rule that an employer must obtain a union’s consent before taking an action that is a mandatory subject of bargaining, unless the employer has reserved the right to act unilaterally in its contract with the union. UAW does not suggest that a contract right that is exercised mutually is not a right the parties possess.
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 62
53
burden of showing that Treasury “manifestly” misconstrued HERA and violated “a
specific statutory prohibition.” Southern Ohio Coal, 20 F.3d at 1423-24.
CONCLUSION
For the foregoing reasons, the judgment of the district court should be
affirmed.
Respectfully submitted,
CHAD A. READLER Acting Assistant Attorney General
CARLTON S. SHIER, IV
Acting United States Attorney
/s/ Gerard Sinzdak MARK B. STERN ABBY C. WRIGHT GERARD SINZDAK (202) 514-0718
Attorneys, Appellate Staff Civil Division, Room 7252 U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, DC 20530
APRIL 2017
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 63
CERTIFICATE OF COMPLIANCE
I hereby certify that this brief complies with the requirements of Fed. R. App.
P. 32(a)(5) and (6) because it has been prepared in 14-point Garamond, a
proportionally spaced typeface.
I further certify that this brief complies with the type-volume limitation of Fed.
R. App. P. 32(a)(7)(B) because it contains 12,991 words, excluding the parts of the
brief exempted under Rule 32(a)(7)(B)(iii), according to the count of Microsoft Word.
/s/ Gerard Sinzdak Gerard Sinzdak Counsel for Treasury [email protected]
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 64
CERTIFICATE OF SERVICE
I hereby certify that on April 12, 2017, I electronically filed the foregoing brief
with the Clerk of Court for the United States Court of Appeals for the Sixth Circuit
by using the appellate CM/ECF system.
Robinson’s counsel are registered CM/ECF users who are served by the
Notice of Docket Activity generated by the appellate CM/ECF system.
/s/ Gerard Sinzdak Gerard Sinzdak Counsel for Treasury [email protected]
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 65
DESIGNATION OF RELEVANT DISTRICT COURT DOCUMENTS 6th Cir. Rule 30(g)(1)
The Department of the Treasury hereby designates the following portions of
the district court record for this Court’s consideration:
Record Entry No. Description PageID Range
15 Amended Complaint 110-179
22-1 Treasury’s Memorandum in Support of its Motion to Dismiss 271-318
22-2 Exhibit A to Treasury’s Motion to Dismiss—Amended Stock Purchase Agreement
319-347
22-3 Exhibit B to Treasury’s Motion to Dismiss—Certificate of Designation of Terms
348-366
22-4 Exhibit C to Treasury’s Motion to Dismiss—Second Amendment to Purchase Agreements 367-379
22-5 Exhibit D to Treasury’s Motion to Dismiss—Third Amendment to Purchase Agreements 380-396
30 Plaintiff’s Response in Opposition to Defendants’ Motion to Dismiss
547-639
63 Memorandum Opinion & Order 1374-1388
64 Judgment 1389
65 Notice of Appeal 1390
Case: 16-6680 Document: 26 Filed: 04/12/2017 Page: 66